Posts pertinent to the entrepreneurial economy. From 2016 onward, focused more on private securities offering exemptions and topics related to startup and emerging company financing.

31 posts categorized "May 2013"

By http://profile.typepad.com/1237764140s22740 //
May 31, 2013
in Books

I'm reading Huckleberry Finn for what, it turns out, is the first time in my life.

The first paragraph of the novel is very familiar, the same way the opening of Pride and Prejudice is familiar, and delightful.

But immediately thereafter my familiarity with the text drops off.

I expected otherwise, probably because my mother used to read to me and my brothers from an illustrated, children's edition of Huckleberry Finn.

Perhaps that children's edition was "inspired" by the novel of the same name from Mark Twain. At any rate, I'm reading the main event for the first time.

There is so much more in heaven and earth not dreamt of in social media.

But another corrective is coming, it sounds like, also in book form: Jaron Lanier's "Who Owns the Future." I heard a bit of the interview of Lanier on Ross Reynold's radio show earlier today.

Lanier's thesis, or one of them, is that supremely powerful computers are destroying the middle class. Or perhaps more precisely the thesis is that a lack of imagination and humanistic empathy has allowed digital overlords to abuse the power of computers to centralize data so that it might be put to the regressive service of manipulating behavior. Said machines could also be used to empower people with economic control over their own information.

Lanier sees an economy expanding and building middle class jobs through trillions of daily micro-transactions. This is the vision of people in control of their own data.

In the fallen state of Eden we actually live in - a garden where the overlords get the data and the suckers get only "informal benefits" (Lanier's phrase) - jobs are a casualty.

I'm going to see if Amazon can't bring me the Lanier book this afternoon. :)

Interesting tweet last night from John Koetsier, linking to his article in VentureBeat about how non-accredited investment crowdfunding has been taking place in British Columbia for some time.

John's tweet and article say that BC is the only place in North America where equity crowdfunding for non-accredited investors is currently legal.

The tweet drew a response from a company called Fundrise, which stated that "Our current [crowdfunded] equity offering is available to non-accredited investors." I tweeted back to ask @Fundrise what exemption they are relying on, but haven't heard back.

It is true, as we have long blogged about here, that certain platforms are cobbling together regulatory compliance strategies from existing, and sometimes little used, securities exemptions, to perform what very much looks like equity crowdfunding. Bolstr comes to mind (see this guest post that Charlie Tribbett and Larry Baker wrote for this blog last summer). Bolstr is finding a way to use Rule 504 of Reg D to crowdfunding effect.

It may be Fundrise is using 504, too. Or perhaps they have a different approach.

Equity crowdfunding for accredited investors is going to re-shape the angel investing landscape. As for crowdfunding for non-accredited investors, I put little hope on the Title III of the JOBS Act. If equity crowdfunding for non-accrediteds takes off in the US, it will be via the creativity of platforms that utilize existing exemptions, or new state laws or regulations that establish intrastate investment crowdfunding exemptions.

First, I wanted to let everyone know that I have updated the statecrowdfundinglaw.com site to add new information about the North Carolina investment crowdfunding bill.

That's the only new development to the site in over a month. If you know of any state initiative - legislative or regulatory - to make investment crowdfunding legal in a given state, let us all know in the comments and I'll add your info to the site. Wikipedia is watching.

Second, I welcome any thoughts on how to escalate, to the SEC and/or the White House and/or Congress, the concern with the bias in the accredited investor definition, which essentially penalizes or discriminates against same sex couples. Is this cause best advanced by a petition, or a Tumblog, or something else?

By http://profile.typepad.com/1237764140s22740 //
May 28, 2013
in Seattle

A construction site well worth keeping an eye on is one in Seattle at the northeast corner of Eighth Avenue and Seneca Street.

The site slopes aggressively from south to north, so the best view is probably from the north. A walkway from Freeway Park permits you to survey the whole site, and even affords a look almost straight down onto the northern line of the site.

I check in most weekday mornings, but can't pretend I know what's really going on. I am most impressed with the coordination of the workers, however. They are moving earth and steel and concrete sleeves with precision belied by the size of their machines.

One morning, a man in a windbreaker, a sightseer like me, explained how they had to drill a hole wide enough to drop a steel casing into, which in turn would permit them to drill a slightly smaller hole underneath the casing. He seemed to know a lot about the machines and about the intended structural support for the eventual building.

I asked him if he were a mechanical engineer, and he said, no. He studied mechanical engineering in school, but went on to have a career in a field completely unrelated. Now that he was retired, he said, he could indulge his passion for construction.

By http://profile.typepad.com/1237764140s22740 //
May 27, 2013
in Crowdfunding

State legislators in North Carolina continue to work on an investment crowdfunding bill. (For context, see this earlier post about the North Carolina initiative.)

You can find the text of both the original and a more recent substitute bill here.

I didn't see a redline or any committee report summarizing the changes that had been made to the original bill, so I ran a redline myself and posted it here on AWS.

I'm not going to say that the changes are going in the wrong direction because I'm just not sure and would probably need to spend more time with the text. But you can most definitely see that the bill is starting to sound more legalistic, like a securities law.

For instance, note what happened to the mandatory disclaimer from the orginal bill (which I think was borrowed from language my friend Joe Wallin had developed and blogged). The idea is to require the crowdfunding issuer to warn investors that they are as likely to lose their investment as Kickstarter backers are to never actually see a copy of the finished film they backed.

Joe's language, in the original bill:

"I acknowledge that I am investing in a high-risk, speculative business venture, that I may lose all of my investment, and that I can afford the loss of my investment. I understand this offering has not been reviewed by the State, and no authority has expressed an opinion on the merits of this offering."

The new language in the substitute bill, somewhat harder to understand but friendlier to lawyers:

"IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED BY SUBSECTION (E) OF SEC RULE 147, 17 C.F.R. § 230.147(E) AS PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME."

Also stripped out - unless it has been placed elsewhere and I've missed it - is the entrepreneur protection of insulating issuers from suits except in the case of fraud or breach of fiduciary duty. (Hopefully that deletion is not a sign that the North Carolina legislators will tack back to the assumption that an issuer is just another name for a likely scam artist.)

On the other hand, there are signs in the substitute bill that the legislators know they are experimenting. At the bottom of the substitute bill, a simple sentence is tucked in that reads, "This act is effective when it becomes law and expires on July 1, 2017." That's good. It should take the pressure off to get everything right, remove the fear that the exemption doesn't work like all the rest.

It shouldn't work like existing exemptions. Something needs to be ventured to see if investment crowdfunding might work for non-accredited investors.